Congress is advancing a budget bill that could impose deep cuts to federal programs that support students and colleges—while also introducing tax changes that could make it more expensive for students to afford college and harder for institutions to sustain their missions. These proposed tax measures, combined with significant funding reductions, pose a dual threat to higher education.Lawmakers are using budget reconciliation, a fast-track process that allows certain tax and spending measures to pass the Senate with a simple majority, avoiding the usual 60-vote requirement. This makes it easier to push through major funding cuts—ones that could have lasting consequences for higher education.
The House and Senate have passed competing budget bills that must now be negotiated. The Senate approach is two different reconciliation packages: one that focuses primarily on border security and defense spending, with a second tax bill to come later. The first bill, which passed Feb. 21 on a 52 to 48 vote, would require at least $1 billion in cuts to education funding.
In contrast, the House is attempting to consolidate defense, border security, and the tax provisions into a single package, which was approved on Feb. 25 by a 217-215 vote. The House bill has a number of concerning elements, chiefly that it requires the Education and the Workforce Committee to identify a staggering $330 billion in cuts over the next decade from programs in their jurisdiction. While the bulk of the cuts would be focused on student loans, it’s also possible that they could come from student financial aid, scientific research, and areas that affect the core operations of campuses.
While this bill is just a blueprint with top-line numbers for each committee—the specific cuts will be identified later—the magnitude of these cuts will have real and lasting consequences for students and institutions alike.
Tax Provisions That Could Reshape Higher Ed
On the tax side, some House Republicans are pushing proposals that would cut further into the finances of students and campuses. While the full details remain in flux, key proposals under discussion include:
- Repealing the tax exemption for scholarships and fellowships, which would make previously untaxed tuition benefits taxable income for students, particularly affecting graduate students.
- Eliminating the American Opportunity Tax Credit and the Lifetime Learning Credit, both of which provide tax relief to students and families paying for college.
- Expanding the endowment tax, which would increase the financial burden on certain private institutions that rely on endowment funds for student aid and research.
- Eliminating the student loan interest deduction, which would make it harder for borrowers to manage their debt.
- Eliminating the tax-exempt status on non-profit hospitals, potentially imposing significant new tax obligations on teaching hospitals.
- Repealing the tax preferences for state and local bonds and tax-exempt private activity bonds, which would raise financing costs, particularly of capital projects, for public and private non-profit colleges and universities.
At the same time, lawmakers have yet to advance measures that would provide tax relief for students, such as making Pell Grants tax-free or reinstating the universal charitable deduction to encourage giving.
It is important for the higher education community to engage in discussions about the proposed provisions to ensure their perspectives are considered. To support these efforts, ACE has compiled a resource page with key information on the tax provisions under consideration.
This page includes details on proposed changes to education-related tax policies, analysis of their potential impact on students and institutions, and materials to assist in communicating with lawmakers. Higher education leaders are encouraged to use these resources to stay informed and advocate for policies that support students and institutions.